You are on page 1of 49

TOPIC 6a

EARNED VALUE
MANAGEMENT (EVM)
1

EARNED VALUE MANAGEMENT

Is the best project control technique for early detection of
performance variances.
The technique was developed nearly 40 years ago for the
United States government to better manage contract
payments to vendors.
Ever since, it has grown in popularity and acceptance
across many industries, and now is regarded as the
preferred project control technique by PMI.
However, it has not been accepted as standard practice in
all industries, and it is usually a technique found in
organizations or industries that are relatively mature in
their management processes.

2

EARNED VALUE MANAGEMENT

Assess cost performance and schedule performance together
– The main value of EVM is that it allows you to measure and track both
schedule and cost performance together. Evaluating project performance
on just one of these indicators DOES NOT always give you the true picture
and does not allow you to detect variances as early.
Each work package has a planned value
– The planned value of any work package is the budgeted cost of the work
scheduled (BCWS) to complete the work package. The important point
here: Estimate the cost of each work package in your schedule. Also, this
means that the project as a whole has a baseline schedule and budget.
At any point, the project has an "earned" value
– The earned value of a project is the budgeted cost of the work actually
completed (BCWP). In other words, how many work packages (or partial
work packages) have been completed at this time? The value is expressed
in budgeted cost terms, not actual costs. This allows you to perform cost
analysis by comparing budgeted versus actual costs for the work
completed (ACWP).
3

INTRODUCTION TO EARNED VALUE
SYSTEM (EVS)

The EVS is used to monitor the progress of work and
compare accomplished work with planned work.

There are several factors in the earned value report that
needs to be known in order to use it effectively.

The factors are the:
– Budgeted cost of work scheduled (BCWS)
– Budgeted cost of work performed (BCWP)
– Actual cost of work performed (ACWP)

These three elements form the basis for the earned value
reporting system.

4

EQUIVALENT TERMS • Budgeted cost of work scheduled (BCWS)=Planned Value (PV) • Budgeted cost of work performed (BCWP)=Earned Value (EV) • Actual cost of work performed (ACWP)= Actual Cost (AC) 5 .

the estimate-at-completion metric (EAC) helps you forecast final project performance and determine if any corrective action needs to take place.EARNED VALUE MANAGEMENT • • • EVM takes the planned value (PV). These metrics provides information about whether the project tasks are taking longer than they should (schedule variance. and compares it against the estimated cost of the work performed (EV) and against the actual cost of work performed (AC). In addition. or CV). or whether they are actually requiring more work effort to complete (cost variance. 6 . or SV). or what you planned to do at an estimated cost. or what actually got done.

7 . • It is determined by cost loading the CPM diagram to determine the distribution of cost in accordance with the project plan. at each time period in the project. • The S-curve for a project represents the BCWS.Budgeted cost of work scheduled (BCWS) • Is the amount of money that was planned. or budgeted.

• It is determined from accounting records or the responsible party that keeps records of actual expenditure of money.Actual cost of work performed (ACWP) • The ACWP is the actual amount of money that has been spent at any point in time during the project. 8 .

Budgeted cost of work performed (BCWP) • The BCWP is the amount of money earned based on the work that has been completed. • It is determined by multiplying the percentage of work completed by the budgeted amount for the work. 9 .

What could you conclude from the figure below? 10 .

If the project was actually completed at week 8. and that is what EVM accomplishes. It also shows the cumulative actual cost of the project (red line) through week 8. labeled PV).Project tracking without EVM • • • • • Figure 1 shows the cumulative budget for this project as a function of time (the blue line. the project is only 10% complete at week 8. then the project would actually be well under budget and well ahead of schedule. the project is significantly over budget and behind schedule. If. it might appear that this project was over budget through week 4 and then under budget from week 6 through week 8. To those unfamiliar with EVM. However. on the other hand. what is missing from this chart is any understanding of how much work has been accomplished during the project. A method is needed to measure technical performance objectively and quantitatively. 11 .

12 .

The chart indicates that technical performance (i.e. but slowed significantly and fell behind schedule at week 7 and 8.. progress) started more rapidly than planned. This chart illustrates the schedule performance aspect of EVM. 13 .Project tracking with EVM • • • Figure 2 shows the EV curve (in green) along with the PV curve from Figure 1.

14 .

15 .Project tracking with EVM • • • Figure 3 shows the same EV curve (green) with the actual cost data from Figure 1 (in red). It can be seen that the project was actually under budget. since the start of the project. This is a much better conclusion than might be derived from Figure 1. relative to the amount of work accomplished.

16 .

It can be seen from this illustration that a true understanding of cost performance and schedule performance relies first on measuring technical performance objectively. 17 . then compare it to PV (for schedule performance) and AC (for cost performance).Project tracking with EVM • • • Figure 4 shows all three curves together – which is a typical EVM line chart. The best way to read these three-line charts is to identify the EV curve first. This is the foundational principle of EVM.

18 .

000. 3. $100.000. The actual cost of each of the tasks that were worked on was $11. $100. and 4 are complete.000.000.Question • Suppose a project is in progress and as of today the planned expenditures for the project were to have been $500.000.000. $120.000.000.000.000. and $20. $230. and EV)? 19 . and $20. AC. $105. respectively. Suppose also that there were five tasks and the tasks had budgets of $30. ACWP.000. Tasks 1. and BCWP (PV. 2. • What are the BCWS. $250.

If the performance to date continues. If we add the $20.000. Unfortunately we are $14.000 behind schedule. This means that we are somewhat under budget.000.000 over budget condition.000. BCWP is $480. • 20 . The planned value is the BCWS and the earned value is the BCWP. ACWP is $486.000 of work that should have been completed but was not.000 less than the planned expenditures to date. We can also see that the actual cost is $14. This means that we are $20. we find ourselves projecting a $6. This is usually considered a bad situation.Answer • • • BCWS is $500. It could be that things are actually worse than they appear at first glance. This is the difference between the earned value and the planned value to date. • From these figures we can see that the accomplishments of the project as of today are somewhat less than what was planned for. the amount over budget will probably be even higher at the end of the project.000 behind schedule.000 under budget but also $20.

A ratio less than 1.Variances & Indices Variances: • • CV = BCWP – ACWP (Cost variance=Earned-Actual) SV = BCWP – BCWS (Schedule variance=Earned-Planned) Indices: • CPI=(BCWP/ ACWP) Cost Performance Index=(Earned/ Actual) Cost variance related as a ratio instead of a dollar amount.0 indicates that work is being completed slower than planned. 21 .0 indicates that the value of the work that has been accomplished is less than the amount of money spent. A ratio less than 1. • SPI=(BCWP/ BCWS) Schedule Performance Index=(Earned/Planned) Schedule variance related as a ratio instead of a dollar amount.

22 . The CPI is used to predict the magnitude of a possible cost overrun or under run.Variances & Indices • • • Ratios are used in the earned value system to predict the cost to complete a project. It adjusts the schedule based on past performance. The SPI is used to predict the magnitude of a possible time advance or delay. It adjusts the budget based on past performance.

23 .

Task 1 is behind schedule. so the project has not earned as much value as was planned.00. Project A also has a SPI value that is less than 1. Although Actual Costs are low.00. Project A has a CPI greater than 1. However. This shows us that the project has been earning value faster than it has been accruing costs. 24 .• • In the schedule below.

Forecasting • BAC=Original project estimate (Budget at completion) • ETC=[(BAC-BCWP)/CPI] Estimate to complete • EAC=(ACWP + ETC) Estimate at completion 25 .

EXAMPLE 1 (Q) • Provide an earned value analysis to evaluate the progress of the sewer and water lines project. 26 . 600 ACWP=RM7. 500 The BCWS and BCWP shown above are the same values as shown on the tenth working day because activity 10. 500 Activity 20. 500 and the project is scheduled to be completed in 94 working days. 100% complete as scheduled. 200 Activity 30. A status report after 10 working days into the project includes the following information: – – – – – – – – Activity 10. 000 BCWP=RM7. 700 BCWS=RM7. 20 and 30 were all completed according to the original planned schedule. actual cost=RM2. 600 BAC=RM147. 100% complete as scheduled. actual cost=RM4. The original budget is RM147. 100% complete as scheduled. actual cost=RM1.

600-RM7. CV=BCWP-ACWP = RM7. Based on the status report the actual cost is greater than earned by RM 100. 27 .EXAMPLE 1 (A) • Cost and schedule deviations: – Cost variance. 700 = -RM 100 A negative value of CV represents a cost overrun.

EXAMPLE 1 (A) – Schedule variance. SV =BCWP-BCWS = RM7. 28 . 600 =0 Since the SV is zero. the project is progressing as planned. 600-RM7. The project is not ahead of or behind the planned schedule.

29 . which indicates the schedule performance is progressing precisely as planned. 600/RM7.0. 600) = 1. SPI=(BCWP/ BCWS) = (RM7. The earned value is less than the actual costs. – Schedule Performance Index. which indicates a poor cost performance.0 The SPI equals to 1. 600/ RM7. 700) = 0. CPI=(BCWP/ACWP) = (RM7.0.EXAMPLE 1 (A) • Cost and schedule performance: – Cost Performance Index.987 The CPI is less than 1.

500/0. 600)/0. 700 + 141. which is RM1. 500-7. the remaining cost to complete the project is RM141. Check EAC = 147. the estimated cost of the project at completion is RM149. – Estimate at completion. 743 = RM 149. 743. EAC=ACWP + ETC = 7.987 = BAC / CPI = 149. 743 Based on the analysis of the statues report. 500.987] = RM141. 943 over the original budget of RM147.EXAMPLE 1 (A) • Forecasting cost at completion – Estimate to complete. 443 Based on the analysis of the status report. 443. ETC=[(BAC-BCWP)/ CPI] = [(147.443 (Scenario 1… previous variances are expected to continue for the rest of the project) 30 .

31 .

6) CV (Cost variance) = BCWP – ACWP (Earned – Actual) 7) SV (Schedule variance ) = BCWP – BCWS (Earned – Planned) 8) CPI (Cost Performance Index) = BCWP/ ACWP. amount stated in tender sum / contract amount 4) BCWP (Budgeted cost of work performed) = EV (Earned Value)…. It indicates the projects is ahead or behind the schedule. The further CSI is from 1.cannot obtain from any document other than actual amount spent. If CPI<1 means project is over budget 9) SPI (Schedule Performance Index) = BCWP / BCWS. the less likely project recovery becomes. 32 . If SPI<1 means project is behind schedule 10)CV% (cost variance percent) = (CV / BCWP) * 100 11)SV% (schedule variance percent) = (SV / BCWS) * 100 12)CSI: Cost Schedule Index (CSI=CPI x SPI)...actual value of work completed to date 5) ACWP (Actual cost of work performed) = AC (Actual Cost)….0.g.Some definition and formula 1) EVA = Earned Value Analysis 2) EVM = Earned Value Management 3) BCWS (Budgeted cost of work scheduled) = PV (Planned Value).…e.. It indicates cost overrun or under run.

16)VAC (Variance At Completion) = Forecast of final cost variance = BAC – EAC 33 . It is the project manager’s estimate of what the final cost of the project (task) will be.Some definition and formula 13)BAC (Budget at completion) = Original project estimate 14)ETC (Estimate to complete) = (BAC – BCWP) / CPI. EAC = comprise of the cumulative to date the actual cost of work performed plus the estimate to complete the remaining work. (scenario 1) ETC = estimate of the cost of the remaining work on the project (task) 15)EAC (Estimate at completion) = ACWP + ETC.

extrapolate the trend through to the end of the project. the past assumptions are not valid. since EAC = ACWP + ETC. In order to have the final project cost.EAC and ETC Frequently asked project management questions "How much will this project really cost to complete it? (ETC)“ "How much will this project final cost? (EAC)“ Initially @ at beginning of project.EV) / CPI EAC = AC + ETC1 (Actual to date plus remaining budget modified by performance) Scenario 2--past estimated assumptions are not valid. we need to calculate the ETC. The four widely accepted methods of estimating ETC are: Scenario 1--variances will be present in the future. thus fresh estimates are needed. ETC2 = New estimate for the remaining work EAC = AC + ETC2 34 . the EAC. past estimate was fundamentally flawed we convince that original estimate is so far off. variances are neither isolated or clear trends. ETC1 = (BAC . It is often applicable when schedule acceleration are such as crashing or fast-tracking are used. current variances are typical current variances will be continue to be present in the future. both answer are BAC.

ETC3 = BAC – EV EAC = AC + ETC3 (Actual to date plus remaining budget) Scenario 4--current variances are typical.EV) / (CPI * SPI) EAC = AC + ETC4 •Either method is personal judgment call based upon their understanding of the project 35 . accelerate to complete project on time there is a need to complete the project on time. ETC4 = (BAC . accelerate the remaining tasks will cost money. therefore the remaining work is divided by the SPI. it is not a trend. The estimate for the remaining work is based upon the Scenario 1 approach of considering any over-run or under-run trend. cost variance occurred is an isolated event. Thus ETC is the original estimate for the remaining work which is unchanged.EAC and ETC Scenario 3--current variances are atypical variances occurred are typical and are not expected to occur in the future.

600 1.400 1. BCWP (example)                                           Work Breakdown Structure (WBS) 1 Preliminaries (lump sum) site clearence Site set up mobilization 2 Earth work Excavation Earth filing Earth disposal 3 Substructure Piling works Pile cap Foundation Stump 4 Ground work Grd slab Grd beam Column 5 Superstructure First flr slab 1st flr beam col to roof 6 Roof Rafter & Purlins Heat proof sheet Prebabricated roof sheet 7 End   BCWS ACWP % of BCWS (BQ) BCWP 17.500 99.240 7.BCWS.470         7.400   3.450 3.670 3.050 4.200 5.200 7.200 7. ACWP.200 3.290 7.400   7.400   7.600 720 0   0 0 0 78.200 7.710   16.440 3.200   5.830   7.200 7.400 1.200 7.840   36 .960 810 4.600 5.200 7.280         7.440   5.280         7.280   100         100 100 100   100 100 100 100   100 100 75   50 20 0   0 0 0 79   17.440 3.200   5.200 7.470 7.320   5.290   3.110 3.960 810   0 0 0 80.200   7.600 5.200 2.

Identify the following elements on week 3. Comment on the data. Week 4 and week 8.Q2 Base on the S-Curve of BCWS. 1)BCWS 2)BCWP 3)ACWP 4)CV 5)SV 6)CPI 7)SPI 8)CV% 9)SV% 10)CSI 13)BAC 14)ETC (Estimate to complete) = (BAC – BCWP) / CPI. (scenario 1) 15)EAC (Estimate at completion) 16)VAC (Variance At Completion) 37 . Remember that they are cumulative data. BWCP and ACWP.

000 120.000 172.000 165.000 20.500 182.500 3.000 190.000 68.000 117.000 23.000 60.000 48.000 5.000 ACWP/AC 0 1.000 150.000 53.150 43.500 6.000 105.000 82.000 28.450 32.000 45.000 30.160 46.300 175.500 95.Q2 Week 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BCWS/PV 0 1.000 185.000 183.000 2.000 125.500 13.000 11.670 55.320 15.000 86.500 88.000 156.000 38 .000 35.000 17.000 BCWP/EV 0 1.500 140.000 185.000 7.000 72.000 171.500 4.000 186.800 3.600 7.000 154.000 38.500 6.000 168.000 101.500 25.660 70.000 10.000 14.

Example Q2 39 .

Example Q2 40 .

Example Q2 41 .

Example Q2 42 .

  1)BCWS week 3 week4 week8           1)BCWP         1)ACWP         1)CV         1)SV         1)CPI         1)SPI         1)CV%         1)SV%         1)CSI         13)BAC         13)ETC         13)EAC         13)VAC                 1)         2)         3)         comment : 43 .Example Q2 Base on the S-Curve of BCWS. BWCP and ACWP. Comment on the data. Identify the following elements on week 3. Week 4 and week 8. Remember that they are cumulative data.

300 1.631.42 154.67 2.36 185.25 14.937.368.85 30. COST PROJECT IS UNDER BUDGET SPI >1.50 7.41 185.38 87.35 185.  1)BCWS 2)BCWP 3)ACWP 4)CV 5)SV 6)CPI 7)SPI 8)CV% 9)SV% 10)CSI 13)BAC 14)ETC 15)EAC 16)VAC comment : 1) 2) 3) week 3 2.50                                     CPI>1.58 30.000 6.000 900 400 week8 7.42 16.000 2.500 100 600 week4 1.14 3.000 175384.000 8.600 2.50 177.62 47.37 26.62 97.900 1.19 1.04 1. PROJECT IS AHEAD OF SCHEDULE         REMAINING COST TO COMPLETE THE PROJECT IS STILL UNDER THE ORIGINAL COST           44 .000 96368.062.30 1.500 1.00 1.000 1.000 148237.884.27 1.115.29 1.700 1.90 1.

Some example 45 .

BCWS) = 18 + 10 + 16 + 6 = 50 • EARNED VALUE (Budgeted cost of the work performed. ACWP) = 45 (from your project tracking . BCWP) = 18 + 8 + 14 + 0 = 40 • ACTUAL COST (of the work performed .Earned Value: Example Today 18 8 14 On Day X: • PLANNED VALUE (Budgeted cost of the work scheduled.not evident in above chart) 46 .

Time (Date) 47 . lue a V ed n r Ea Earned Value: Value value (cost) of what you have accomplished to date.Cost (Person-Hours) Earned Value: Example Actual Cost: Cost what you have actually spent to this point in time. i ng d n pe S al u t Ac Today g d in n e Sp ) ed n n Pla ( d e te g d Bu Planned Value: Value what your plan called for sending on the tasks planned to be completed by this date. per the base plan.

Cost (Person-Hours) Earned Value: Example Today ) ed n n Pla ( d e te g d Bu Over Budget i ng d n pe S al u t Ac lue a V ed n r Ea g d in n e Sp Behind Schedule Time (Date) 48 .

Earned Value & Variance: Example 18 8 14 On Day X: • PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50 • EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40 • ACTUAL COST (ACWP) = 45 (from your project tracking) Therefore: • Schedule Variance = BCWP – BCWS = 40 .45 = -5 • Cost Performance Index = 40/45 = . or you’re getting an 89¢ return on every $1. or 80% of plan (a B-.89. at best) • Cost Variance = BCWP . person-hour) spent on this project 49 .50 = -10 (behind schedule) • Schedule Performance Index = 40 / 50 = 0.00 (or.ACWP = 40 .8.